COMMENT: Polysilicon production comes out from under a cloud

While the industry is now having to go largely without the support from UK and European governments that saw a wave of new participants enter the solar supply chain in 2011, it is expanding at a more sustainable rate after fierce price competition drove a number of companies out of business.

Less than a year ago, the growth prospects throughout the solar supply chain looked massive – including the demand for silicon metal raw material, which is processed into high-purity polysilicon for use in silicon wafers for solar panels.

Demand for silicon metal for polysilicon production was running at about 300,000 tpy, from practically zero five years earlier, and was expected to reach about 500,000 tpy in 2013.

Even long-time aluminium alloy market participants were taken aback by how rapidly the silicon price was strengthening when the secondary aluminium price was stagnating.

Huge government incentives saw production capacity across the supply chain rocket, feeding the huge hunger for renewable power sources, especially in Europe. The UK passed the 1-gigawatt milestone on February 23 this year, while Germany has installed an average of 7.5 gigawatts in each of the past two years.

Government support has been cut…
But the pace of expansion was not sustainable. As supply outstripped demand, consumers built up stocks and, by the fourth quarter of 2011, had lost their appetite for new material. Today, a solar module costs half what it did five years ago.

The state subsidies have been cut. In Germany, they fell by about one-quarter in early March, four months earlier than originally planned. Similar cuts have been made in the UK, France and Italy over the past year.

The downturn was a result of overinvestment and oversupply. Production has now dropped in Europe and China, where it has fallen by one-third. Demand is expected to outpace supply again later this year.

...but polysilicon output is being ramped up
The result is that polysilicon producers are once again expanding production. Germany’s Wacker Chemie is ramping up to full capacity at its Nünchritz and Burghausen plants, and is forging ahead with its previously announced expansions.

Norway’s Elkem, which reduced the output of solar-grade silicon at its polysilicon production facility in Kristiansand in late 2011, announced on March 17 that it plans to return to full production.

While the industry could never have lived up to the hype of the past few years, it nevertheless has strong growth prospects. Sales of polysilicon are recovering and going some way towards making up the losses from contracts cancelled by the companies that are no longer in operation.

With a market now more closely tied to its own fundamentals and not the financial support of governments that want to be seen promoting renewable energy, polysilicon production can advance from a more stable platform.

Should secondary aluminium prices drop again, the price of silicon metal may not follow.